RusEnergy

MOSCOW, January 26 (RIA Novosti) - Russia's energy and industry minister said Wednesday that the terms for the development of the Shtokman gas field off Russia's Arctic Coast should be set based on investor estimates. "This is a unique deposit not just in terms of reserves, but also in terms of extraction techniques. Therefore there're grounds to talk about [applying] the Product Sharing Agreement," Viktor Khristenko told a news conference after talks with Norwegian Petroleum and Energy Minister Odd Roger Enoksen. When investors submit their estimates, a decision will be made as to whether the deposit should be developed under the PSA or under a regular taxation regime, Khristenko said. Russian natural gas monopoly Gazprom is currently selecting partners to cooperate on the Shtokman project. The shortlist includes Norway's Statoil and Hydro, France's Total and the U.S. companies Chevron and ConocoPhillips. The Shtokman deposit is located in the Barents Sea, 650km from the Russian port of Murmansk. It contains an estimated 3.2 trillion cu m of natural gas and 31 million metric tons of gas condensate.

01-26-2006 Kommersant - In the environment when the frost prompted Italy, Hungary, Romania and Poland to curtail gas consumption of industrial consumers by between 7 percent and 10 percent, and Russia's Industry and Energy Minister Viktor Khristenko vowed to readdress all gas claims of the EU to Ukraine, ENI seized the chance to slap Gazprom, saying it couldn't be trusted to enter the retail market of Italy. It appears ENI just wants to add its own intermediary to system of gas deliveries to the country. Of 440 million cubic meters of gas that Italy daily consumes in winter, from 40 million cubic meters to 45 million cubic meters are to be saved starting from today, said Italian Industry Minister Claudio Scajola. The situation is similar in Hungary and Romania, which suffer from the 15-percent decline in Russia's gas delivery. Nearly all large enterprises and two big heating power plants have reduced gas consumption in Poland. Germany and Austria are in the different league. Lucky to have the gas pumped via Belarus, they have never complained of Gazprom's failure to execute contractual obligations. It is Italian ENI that has staged the most powerful attack on Gazprom, warning the European Union to prevent Russia's gas monopoly from reaching end consumers. The interesting point is that ENI has actually promised to Gazprom to set up a joint venture and transfer its domestic contracts for 2 billion cubic meters of gas. The parties have not agreed on the intermediary yet, said a source familiar with the progress in talks. Anyway, ENI CEO Paolo Scaroni said yesterday he would soon go to Moscow to negotiate.

RBC, 25.01.2006, Moscow 19:46:25.LUKoil is poised to invest $6 to 8bn into foreign projects during the coming 5 years, Andrei Kuzyayev, head of LUKoil Overseas Holding (operator of LUKoil's international projects), said in London today. Kuzyayev noted that the investment volume took into account the West Qurna project that is about to be launched. By 2010, LUKoil Overseas proposes to increase hydrocarbon output by at least 140 percent to 146m barrels. Thus, the contribution of LUKoil's foreign projects to the company's overall output will rise to 17 percent. Kuzyayev also pointed out that in 2005, the company's hydrocarbon production surged by 150 percent in foreign countries, and thus accounted for 8 percent of the total output. The company's reserves outside Russia grew by 1.8m barrels of oil equivalent, which is equal to 10 percent of LUKoil's overall reserves growth over the past 5 years. In 2001-2005, LUKoil invested around $4bn into foreign projects. More than a half of the funds was used to acquire new assets, and the rest was spent on the development of the already existing projects. LUKoil views the Caspian region, including Kazakhstan and the Middle East, as well as North Africa and America as its priority directions.

ST. PETERSBURG, January 25 (RIA Novosti) - Russia and Uzbekistan signed several preliminary agreements to develop oil and natural gas deposits in the Central Asian republic at an economic summit in St. Petersburg Wednesday. Russian energy giant Gazprom and Uzbek officials signed a document, stipulating basic principles of a bilateral product-sharing agreement that the sides are expected to sign in the second half of 2006. The document was signed in the presence of the leaders of the Eurasian Economic Community (Eurasec), an economic club of former Soviet republics formed in 2000. The organization took on Uzbekistan as a new member Wednesday. The other Eurasec members are Russia, Belarus, Kazakhstan, and Tajikistan. Gazprom CEO Alexei Miller and Abdusal Azizov, the head of Uzbekistan's state-owned oil and gas company Uzbekneftegaz, also signed a draft agreement on geological survey in Uzbekistan. Speaking at a news conference after the summit, Uzbek President Islam Karimov said Gazprom had been authorized to conduct surveys over an area of 34,000 sq m. Karimov said the area was rich in hydrocarbon resources, and that in adjacent territories six deposits had been discovered and were being developed. He said Gazprom planned to invest $260 million in the survey efforts, while overall investment in the project would total at least $1.5 billion. Miller echoed the Uzbek president's comments, saying investment in the survey efforts and production would be considerable. "Gas to be produced in Uzbekistan will be exported only by Gazprom," Miller added. He said the project in Uzbekistan would not affect gas production in Russia. Miller also said Russia and Uzbekistan were considering building new gas pipelines on Uzbek territory.

VIEWPOINT January 2006 RYE, MAN & GOR Securities – Whatever political analysts and economists may say, investors are bound to be pleased with Russia in 2005. The RTS Index has risen from 600 to over 1100 points in 12 months, making Russia the best performing market of major significance in the world this year. Where do we go from here? From our current vantage point, there are two obvious market landmarks in 2006. The first is Gazprom share market liberalization, which will go live in mid-January immediately after Russia’s extended New Year holidays. It would be hard to find anyone less suited to play Santa, but Vladimir Putin was clearly trying himself in that role on the day before Christmas Eve when he signed legal amendments to the law “On gas supply”, which liberalize trading in Gazprom shares. There is no guarantee that stock prices of the gas giant will rise quickly in the new conditions: there was almost no price reaction to the Friday news on the St Petersburg Exchange, and we are agreed with many analysts in finding Gazprom generously valued at current levels. It looks as if the RTS will continue its current arrangement, trading via St Pete, but arrival of the stock on the MICEX will make it more mainstream for onshore investors. As we calculate (see Oil in this Weekly), the current, official ADS volume plus over 20% traded in gray schemes mean that foreigners get access to an extra 15% of the company’s stock thanks to the liberalization. The other obvious landmark for 2006 on the share market is the Rosneft IPO, which is supposed to happen next summer. Indications in recent months suggest ballpark value of the IPO around $10b. The Gazprom and Rosneft actions clearly have big potential for expanding Russian share trading volumes. And foreign investors, who buy these stocks, will presumably also be interested in diversifying their Russia risk by investment in other companies, spreading the benefit across the market (some brand new opportunities on the RTS have been presented in our recent series of stock metrics). However, we do not see triumphant progress as guaranteed in 2006, as least not based on Gazprom and Rosneft alone. The main problem could be clumsiness in implementation and presentation. We have seen instances of this even before the New Year begins. On the same day as Putin gave investors the gift of free trading in Gazprom, Russian TV showed the company CEO, Alexei Miller, giving a demonstration of how gas supplies to Ukraine will be shut off from January 1 if agreement on major price rises is not reached. The implications of such a development for Gazprom and its European customers, who receive most of their gas across Ukraine, would be dire. The spectacle was both unwise and gratuitous on a day, when investors and international media should have been focused on a positive image of Gazprom. Also last week Russia’s Federal Service for Financial Markets warned that it may reduce the limit on share capital that can be go abroad in depositary receipts from 40% to 30%. The idea is to foster growth of an onshore market, but (again) the timing was bad: Gazprom said last week that it will seek to increase the allowable volume of its depositary receipts to the maximum next year. Investors, who are now looking at Rosneft prospects in 2006, will also have been worried. Popularity of “government-backed” stocks has been evident on the RTS in recent months. But the kind of strategy collisions just described is further proof that a proper stock market has to be dominated by private companies.

MOSCOW. Jan 25 (Interfax) - OOO LUKOIL-Nizhnevolzhskneft (a 100% subsidiary of LUKOIL) has acquired 51% minus 1 share of OAO Primorieneftegaz, for $261 million, Lukoil (PTC: LKOH) said in a statement on the London Stock Exchange Primorieneftegaz holds a license for geological exploration of the Poymenny area located 60 km north of Astrakhan. Primorieneftegaz discovered the Tsentralno-Astrakhanskoye gas and condensate field in that area in May 2004. Drilling of Primorskaya Well No. 1, 4,188 meters deep, resulted in commercial inflow with a daily rate of 262,200 cubic meters of gas and 110 cubic meters of condensate, the statement said. Approved C1+C2 reserves of the field are: - free gas - 1.2 trillion cubic meters; and condensate - 300 million tonnes. The probable and possible reserves are estimated at 2.76 billion barrels of oil equivalent. LUKOIL specialists believe that the production level at the Tsentralno-Astrakhanskoye gas and condensate field may be up to 20 billion cubic meters of gas and 8 million tonnes of condensate per year that will ensure stable production and refining of hydrocarbons during 30 years, the statement said.

MOSCOW, January 24 (RIA Novosti) - International ratings agency Moody's has changed the outlook of Russian oil company LUKoil's Ba1 Corporate Family Rating and Ba2 Issuer Rating to positive from stable, the agency said in a statement Tuesday. "The change in outlook to positive reflects LUKoil's ongoing strong financial performance, as evidenced in its recent results for the first 9 months of 2005, assisted both by higher crude and product price realizations and greater operational efficiency and Moody's view of the moderate improvement in Russia's operating environment as far as private enterprise is concerned, following the state's assumption of a greater role in core strategic industries. "Moody's also emphasizes the ongoing improvements that LUKOIL has made in improving its corporate governance and financial transparency standards, which rank amongst the strongest in Russia," the agency said.

MOSCOW, January 24 (RIA Novosti) - International ratings agency Moody's has changed the outlook to positive from stable on TNK-BP's ratings, the agency said in a press release Tuesday. "These include the Ba1 long term corporate family rating of TNK-BP International Ltd ("TNK-BP"), the Ba2 senior unsecured rating of the USD5.0 billion debt issuance program issued by TNK-BP Finance SA ("TNK-BP Finance") and the Ba2 senior unsecured rating on JSC Tyumen Oil Company's ("OAO TNK") USD700 million loan participation notes due 2007. "The change of outlook is reflected by (1) the company's ongoing strong cash flow generation, supported by both high oil prices and improvements to operating performances and processes, (2) improved corporate structure following recent streamlining, as well as further strengthening of corporate governance and financial transparency standards, and (3) Moody's view of recent moderate improvements in Russia's operating environment for private companies and the support afforded by TNK-BP's political endorsement, despite some ongoing uncertainties," the agency said.

MOSCOW, January 25 (RIA Novosti) - Russian oil giant LUKoil has discovered a major oil and gas condensate field in the northern part of the Caspian Sea, the company said Wednesday. The new field located 220 kilometers (about 140 miles) away from the Caspian port of Astrakhan contains an estimated 600 million barrels of oil and 1.2 trillion cubic feet of natural gas, the company said.

24.01.2006 IntelliNews Today - According to a source in gas major Gazprom, the Ministry of Natural Resources approved the upward change in estimated reserves of gas and gas condensate field Shtokman in Barents' Sea (650 km north from Murmansk city). The change was done based on the results of 3D seismic survey. Earlier, as of Jan 1, 1995 , the field officially had proved reserves of 3.2tn m 3 and 31mn tons of gas. The gas reserves of the deposit are to be used for LNG production and its exports to the world markets, mainly to the USA .

24.01.2006 IntelliNews Today - According to oil major Russneft's CEO Mikhail Gutserev, the company is going to exchange assets with another oil company LUKoil. Specifically, Russneft will sell LUKoil its 34% stake in oil producer Geoilbent. In exchange, LUKoil will give up several of its oil extracting assets. The Russneft's CEO did not specify, which assets were meant. LUKoil tries to buy a stake in Geoilbent since mid-2005. The oil major bought 66% of Geoilbent’s shares from Novatek in June 2005 for USD 180mn. However, the transaction was contested by Russneft's subsidiary BraodWood Trading and Investments, which earlier purchased the 34% stake in Geoilbent from another oil major Yukos. The deal was blocked for several months until the agreement was reached. After that LUKoil began negotiations with Russneft to acquire the remaining 34% stake in Geoilbent

Jan. 24, 2006 Kommersant - Russia's companies or the companies with basic assets located in Russia accounted for nearly 28 percent of the size of IPO registered on LSE in 2005, KMPG said in the report released Monday, January 23, 2006. In size of the placed issues, the stock exchanges of Russia were the fourth in Europe, according to KMPG. The number of Russia's IPOs will remain high in the following few years with more and more funds to be raised through the national stock exchanges, the market players forecast. In its report, KPMG pointed to the growing share of companies, which choose the trading floors of Europe for their IPOs. The number of European IPOs climbed 40 percent past year, while their American counterparts suffered the 14 percent decline. In Europe, LSE was the obvious leader with the IPO size of ?8.53 billion. Nearly 28 percent of the amount was covered by Russian companies or the companies with the basic assets located in Russia. Moreover, Russia's AFK Sistema was the second past year in the size of the LSE IPO. Overall, nine companies of Russia carried out their IPOs on LSE in 2005, though they used to do it on NYSE. The analysts attribute such preference shift to high costs and extremely complicated procedures for entering the U.S. stock market. On the other hand, the amount placed by Russia's companies on the national stock exchanges is also going up with as much as €2.26 billion posted in 2005. Russia's market was already the fourth in Europe past year, having yet to catch up with the markets of Great Britain, France and Germany. "IPO number will rise on Russia's market next year. The market of Russia has proved its attractiveness and depth; more and more national companies get interested in placing exactly on domestic stock exchanges," said Andrey Burlinov, who is the executive manager at investment banking department at Troika Dialog.

MOSCOW, January 24 (RIA Novosti) - The growth of natural gas reserves in Russia exceeded output for the first time since 2000, hitting 110%, while oil reserves grew 60% in 2005, the Federal Agency for the Management of Mineral Resources said Monday. "The estimated output in 2005 was: oil and condensate - 470 million metric tons [about 9.4 million barrels per day], gas - 600 billion cubic meters," the agency said in a statement. Natural gas reserves grew by 660 bln cu m, and oil reserves by 285 million metric tons [about 5.7 million bbl/d]. Federal budget expenditures on oil and gas prospecting totaled 4.47 billion rubles ($159 million) in 2005 against 2.25 billion rubles ($80 million) in 2004, the agency said. Most of the prospecting work was conducted in eastern and western Siberia, in the Arctic seas and in the Okhotsk, Caspian, Azov and Black seas. According to the agency, the bulk of additional natural gas reserves was discovered through prospecting conducted by energy giant Gazprom at the Shtokman deposit in the Barents Sea, by the state-run Rosneft oil company at Vankor (Krasnoyarsk Territory) and Priobskoye fields (the Khanty-Mansiisk Autonomous Area), and by LUKoil also in Khanty-Mansiisk. "The federal expenditures on prospecting [in 2006] will increase by 60% to 7.32 billion rubles ($261 million)," the statement said.

MOSCOW, January 23 (RIA Novosti) - Russian oil company LUKoil's overseas subsidiary has started drilling a second exploration well at Egypt's offshore North-East Geisum block, the firm said Monday. The well is to be drilled to a depth of 1,574 meters, and the estimated cost of the six-week project is $6.1 million. LUKoil Overseas won an open tender, held by the Egyptian State Oil Company, for the North-East Geysum and West Geysum offshore blocks in January 2003 and signed agreements with the Egyptian oil ministry later that year in June. The Geisum blocks are thought to hold around 261 million barrels of oil. The four-year geologic exploration program envisages the drilling of four exploration wells in the second phase of development. Lukoil has initially budgeted $27.8 million for the exploration work. The first exploration well was drilled at North-East Geisum in late 2004 and proved the presence of hydrocarbons.

MOSCOW, January 20 (RIA Novosti) -- The Russian Natural Resources Ministry said Friday it intends to hold auctions for subsoil licenses in 2006, including 200 tenders for hydrocarbons and 800 for solid mineral deposits and underground water reservoirs. The 2006 budget plan for one-off payments for the licenses was 20 billion rubles (about $707 million), the ministry said. Last year, 600 mineral deposit licenses were auctioned off, and 16.5 billion rubles was spent on exploration work, compared with 10.7 billion rubles in 2004. A total of 17 new mineral deposits were discovered. State investments into exploration would allow for a 50% growth in hydrocarbon reserves and for an increase in production of uranium, copper, nickel and rare metals, a statement from the ministry said.

01-20-2006 The Moscow Times - TNK-BP has hired Deutsche Bank and UBS to handle the sale of its Udmurtneft oil producing unit, a person familiar with the deal said Thursday. The country's No. 2 oil company, which declined to comment on the issue, had delayed the sale of the unit in November, saying it needed more time to draw up a valuation. "This is up for sale. Deutsche Bank and UBS are running the sell side," the source said, speaking on condition of anonymity. Udmurtneft, TNK-BP's key asset in the republic of Udmurtia, produced 5.8 million tons of oil in 2004, according to the TNK-BP web site. The unit has reserves of around 1 billion barrels of oil equivalent, and could be worth over $3 billion, one industry source familiar with the situation said Thursday. Vedomosti has reported that TNK-BP plans to sell assets in European Russia worth up to $3 billion and focus on production on the other side of the Ural Mountains in Western Siberia. Spokespeople of UBS and Deutsche Bank in London declined to comment. A TNK-BP source said that no firm list of bidders for Udmurtneft existed yet. Potential buyers may be asked to submit their preliminary bidding proposals before the end of February, said three people with knowledge of the sale. TNK-BP has sent out papers outlining its business to potential bidders, said two of the people, who have seen copies of the document. The bidders could include a number of Asian energy companies, three people familiar with the sale said. China National Petroleum Corp. and India's Oil & Natural Gas Corp. may be among the bidders for the $3 billion venture, the people said. China Petrochemical Corp., Asia's biggest refiner, is also considering a bid for the venture, the people said, asking not to be identified because talks with clients are confidential. China and India, which consume 11 percent of global oil production, need energy supplies to sustain the fastest growth among the world's 20 biggest economies. "The governments of China and India are more concerned about high oil demand in coming decades, and that's going to drive a rise in energy deals," said Tim Leung, who helps manage $500 million of Asian stocks at IG Investment in Hong Kong. "They're also trying to cut reliance on areas under U.S. influence, such as Saudi Arabia and Iraq. Russia's one option." Malaysia's state-owned Petroliam Nasional, or Petonas, may also bid, the people said. Liu Weijiang, division head of the international department of China National Petroleum, said he was not aware of any acquisition. China Petrochemical, known as Sinopec Group, was not available to comment. Petronas spokesman Azman Ibrahim did not respond for requests for comment. A spokesman at Oil & Natural Gas declined to comment. TNK-BP declined to comment also on the Asian buyers thought to be looking at the business. State-owned China National Petroleum may bid together with its Hong Kong-listed PetroChina unit through an equally owned venture, the people said. "Our company is pursuing the goal of boosting output domestically and from overseas markets," said PetroChina spokesman Bi Jianguo. He declined to comment on the Russian deal.

20.01.2006 IntelliNews Today - According to Fitch Ratings, the agency affirmed oil major Tatneft's long-term credit rating at B. At the same time, the long-term rating of Turkey-based Tupras oil refinery was affirmed at BB+. The ratings were removed from a Rating Watch list. The outlooks for all the ratings are stable. The action reflects the Turkish Privatization Agency's negative decision and earlier agreed sale of the refinery's 65.76% stake to the consortium led by Tatneft for USD 1.3bn was cancelled.

17/01/2006 RZD News - Surgutneftegaz has issued a sell tender for an early-February loading of Urals crude, traders said on Monday. The tender, which closes and should be awarded on Tuesday, is for 1 million-barrel cargo for Feb. 6-7 loading out of Russia's main Black Sea port of Novorossiisk. Surgut's most recent tender for a Black Sea cargo was awarded almost a month ago to Europetroleum, reports The Moscow Times referring to Reuters.

MOSCOW, January 10 (RIA Novosti) - The Russian government has effectively abolished duties on liquefied natural gas exports, the Russian government's press service said Tuesday. Prime Minister Mikhail Fradkov has signed the relevant regulation to scrap duties on all LNG exported beyond Russia's immediate neighbors, which will come into effect a month after it is published, the press service said. Russian energy giant Gazprom came up with a proposal last year to abolish the export duty, which was 40 euros ($48.50) per 1,000 cubic meters. Economic Development and Trade Minister German Gref has said that scrapping the duty would encourage foreign partners to invest in Russia's LNG industry. Gazprom has signed a succession of memorandums of understanding with European energy firms as it seeks to develop the Bering Sea's giant Shtokman gas field, where recoverable reserves are estimated at some 3.2 trillion cu m. Gas would be shipped as LNG to markets in the United States and Europe. Production is due to start in 2010. Russian Natural Resources Minister Yury Trutnev said last month that Norwegian experience and expertise could be valuable to the project. Gazprom has cooperation agreements with Norsk Hydro and Statoil, Norway's leading energy companies.

IRKUTSK, January 11 (RIA Novosti, Alexander Batalin) - Russia increased rail deliveries of its oil to China by more than 30% in 2005, to more than 7.6 million metric tons (150,000 bbl/d), Russian Railways said Wednesday. "Russia transported more than 7.6 million metric tons of crude in 2005, almost 80,000 metric tons above the target," the press office of Russian Railways' East-Siberian branch said. Volumes of Russian oil sent to China via the Trans-Siberian trunk line are expected to increase further this year, with about 790,000 mt due to be delivered this month. A construction program is under way, according to Russian Railways, to increase the capacity of the line and to modernize infrastructure at railway stations.

MOSCOW, January 13 (RIA Novosti) - Russia's largest crude producer LUKoil has abandoned long-standing plans to construct an oil refinery in the Kaliningrad region, the company's senior official said Friday. "In order to maintain the refinery, we need [tax] benefits that are generally applied in Kaliningrad," LUKoil Vice President Leonid Fedun said. "It is unlikely that we will get these benefits, so there will be no refinery, at least with our participation." At the same time, the company is considering alternative sites for a plant, following acquisitions made by the firm's strategic partner, US oil major ConocoPhillips, Fedun said. LUKoil initially announced its plans to build a refinery in the Russian Baltic exclave of Kaliningrad as far back as in 2000. The development of the plans were regarded mostly as a strategic move to put pressure on Lithuania's Mazeikiu Nafta refinery, in which LUKoil has long been interested as a gateway to European market, than a concrete and economically viable project. In a December 13, 2005 article, Lithuania's Litovskaya Narodnaya Gazeta newspaper quoted Kaliningrad Governor Georgy Boos as saying: "LUKoil Baltija head Ivan Paleichik has not ruled out the possibility that LUKoil may decide to build a refinery if it fails to get the shares of the Lithuanian oil complex. 'If the refinery is built, Mazeikiu Nafta will be of no interest." A 53.7% stake in Mazheikiu Nafta, currently owned by Russian oil firm Yukos, is up for sale as Yukos attempts to pay off its multi-billion dollar back tax bills.

MOSCOW, January 13 (RIA Novosti) - The output of Russian oil company Tatneft reached 25.3 million metric tons (508,000 bbl/d) in 2005, up 0.9% from 2004, the company said Friday. The increase was in line with the firm's recent growth patterns, but fell short of matching production growth for Russia as a whole, which was up 1.7% in last year, according to preliminary government data. Leading independent Russian producer LUKoil earlier Friday reported a 4.4% increase in oil production in 2005, to 90.1 mln mt. Tatneft said it exceeded its drilling targets, with a total of 780,500 meters drilled. The figure included 508,400 meters for the company itself, with the rest under separate contracts. The company put 549 wells into operation, including 354 for the company and 195 for other customers. Tatneft operates in the Russian republic of Tatarstan. The republic's government owns a majority stake in the company.